Contracted Volatility and Key Price Zone
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It was a shut-out yesterday, with all the major
indexes and sectors finishing on the downside. The SPX was -1.1% to
1423.91, the $INDU -0.9% to 12503, and the QQQQ -1.3% to 43.73. NYSE
volume expanded to 1.75 billion shares, with the volume ratio just 26 and
breadth -1782, which is the most negative since the -2097 on 11/27/06. TLT
was a factor on the breadth figure, as it was -0.7% yesterday, and is -1.3% on
the week so far. Most all of the reasons given by the media for these
daily ups and downs are all Wall Street clichés, and if you follow them closely,
you’ll see that the same reasons are often given for both the advancing and
declining days. I will give you a few of the most frequently used on
Monday for a few laughs. “Interest rates, taxes and government spending do
matter. The other economic numbers are so bogus that even a couple of the
regional Federal Reserves Presidents have been commenting on the need for more
timely and valid information.”
The SPX daily range last week was just 11 points,
with a daily average of 6.8 points. I mentioned in the last commentary
that contracted volatility usually precedes good moves, and we see some of that
expanded volatility this week. The weekly range has almost doubled last
week’s at 20.3 points into today’s trading session. Yesterday the SPX’s
decline was from the initial level of the key price zone, with entry on the
reversal of 1438, which is a primary Fibonacci extension of Wave 1 (769-954) for
this bull market cycle that started on 10/10/02. Daytraders aware of the
anticipated key price zone had a bonus day yesterday because of the extended
trend-down action. But you can’t get lucky unless you buy your ticket.
There are 4 trading days left in the month, so the generals will not let
yesterday’s decline get legs. The primary generals’ 2006 holdings/winners
are where daytraders are most likely to find opportunites for the next few days,
in addition to the index proxies. The OIH and XLE had advanced 8 days,
with the OIH closing Wednesday right at the 200 dema, so yesterday’s reversal (OIH
-2.3%, XLE -2.1%) has more downside room.
The best scenario today would be early weakness,
with the SPX taking out the weekly low of 1420.40, which would put the RST into
play for a pop into month-end, and maybe the first few days in February, new
money time.
Have a good trading day,
Kevin Haggerty
Check out Kevin’s
strategies and more in the
1st Hour Reversals Module,
Sequence Trading Module,
Trading With The Generals 2004 and the
1-2-3 Trading Module.